FREQUENTLY ASKED QUESTIONS:
Why do I need insurance?
Insurance: An Introduction
Insurance is a product that many see as a necessary evil. Certainly in years gone by it has been seen as a product sold by companies who took premiums and then did everything possible to avoid paying claims.
Unfortunately, occasionally this reputation has been found to be true and still today, even with increased regulation and better internal controls, we see some companies continuing to act in this way. It should be stressed that these companies are in the minority but, as usual, it's the few bad eggs that spoil the reputation of the majority.
Insurance is there to pay in the event of an accident or event that can be considered unforeseen. It is important to remember that it is the duty of a client to do everything possible to reduce the chances of a loss occurring and, if it does occur, to do everything possible to minimise any loss to insurers.
Experience tells us that circumstances where people have had a poor experience with claims can generally be put down to 2 main problems:
1. The risk being covered by an insurer (and provided by a broker) recommending the cheapest premium to win a client without really understanding the risk itself.
2. The client not fully understanding the cover that has been provided and any limitations it contained
It is true to say that in most areas of the yacht industry the chances of actually having a claim are low. This is one reason premiums are able to remain so competitive and most risks are able to be insured in some form.
While current premiums may be low (average yacht premiums are about half of what they were 12 years ago) the statement of 'there is no insurance as expensive as insurance that doesn't pay' is also very true and if insurance is to be bought at all it should be bought in a manner ensuring a positive response when needed.
Insurance is all about the transfer of risk. As such it should be looked upon with a view of 'how much risk can I bear myself and what am I prepared to pay for moving the amount of risk I feel uncomfortable bearing'. Obviously the greater the risk and the more transferred the higher the premium, with corresponding terms and conditions being set by insurers. It is therefore fair that a client should be prepared to pay accordingly.
The above is very basic but it applies to all types of risk and highlights a couple of very important issues:
1. Cheap is not always good
2. Understanding of risk is essential.
Terminology
Insurance Broker: This company / individual represents the client when arranging covers with an insurer. This means a broker is likely to (and certainly should) approach a variety of insurers for quotes, compare their terms and provide the best of these to the client. At all times the broker must act in the best interests of the client, even if it means earning less commission in doing so.
Insurer / Underwriter: These are the risk takers. These companies discuss the risk concerned with the broker or agent and set terms and conditions accordingly. The better quality insurers will likely have a better grasp of the risk and, while they may charge a higher premium, they are likely to have a quality product better suited to the risk involved. In some cases insurers will deal directly with clients. While in the first instance this may appear to make sense in saving time it does not save premium and, more importantly, should something go wrong there is no one to protect the interests of the client. Further, cutting the broker out leaves the client to try and understand what clauses and exclusions mean, to compare quotes from different insurers himself and to try to negotiate terms with an insurer; all from a point of weakness because he does not have the experience or relationship with that insurer to obtain the best terms from them.
Insurance Agent: This is usually an individual but sometimes a company who has an arrangement with one or more insurers to represent them in selling their products. As such an agent represents the insurer. This means that an agent will likely sell a product best suited to the insurer and the levels of commission the insurer pays him as opposed to the programme that is best suited to the client. Further, most countries restrict the number of insurers an agent is allowed to represent, thus reducing the choice for the client. Of course, there are some very good agents who have worked hard with insurers to offer high quality specialist products but still, the key difference is in them representing insurers' best interests and not those of the clients.
Broker: For some, much smaller risks, an agent may be the best route to go but generally speaking a broker will give more choice and he is duty bound to act in a client's best interests whereas an agent is not. Having said this, any broker can provide cover from any insurer but, without fully understanding the issues involved, it is likely the client will not end up with the right insurance programme which, as outlined above, can lead to difficulties. With the above in mind, from a client's perspective, it is therefore important for the broker to engage fully with those offering quotes and advice to ensure that he (or she) fully understands the risk involved and the client's approach to risk taking.
It is true to say that neither client or insurer wants to have a claim on their hands but if the unfortunate does happen, a broker is very well placed to handle this for a client and negotiate the best possible settlement for him - sometimes (due to his relationship with the insurer) succeeding where there is no clear claim. Everyone wants to avoid having an accident leading to a claim and Risk Management plays an extremely important part in this. An insurance broker with sufficient experience will be able to assist greatly here and, while risk management measures may appear to cost more initially, experience tells us that if properly implemented they do save an owner time and money in the long run.
When specifically applied to yacht insurance (and risks surrounding the yacht industry) it is important to use an insurance broker who understands yachts and who also has wide experience with the specialist insurers needed to provide such covers. Due to the very personal aspects of the industry, most covers will need to be tailor made to suit owners and their crew and it will take some discussion for owner and broker to fully appreciate what is required from an insurance programme. As such, rather than simply ask a number of brokers to obtain quotes and look for the cheapest one being offered a client should look to the broker with the most understanding of the risk involved and experience in the market place that allows the best terms to be made available.
The yacht insurance market is fairly small and there are relatively few insurers who specialise in this field of insurance. As such if a number of brokers are asked to offer terms it is likely that most will approach the same insurers for terms. The rule of thumb is that insurers must offer one broker exactly the same terms as they offer another. After a couple of brokers have approached an insurer the insurer will become wary of why so many brokers have been asked to offer quotes with the result being that they will become increasingly inflexible. In the main, clients do not appreciate that the market is small and most clients feel that a broker will approach only one or two insurers for terms. It is, therefore, the role of the broker to explain to a client which insurers he will approach and in return the client should trust that broker to obtain the best possible terms for him.
From the client's perspective it is reasonable to expect a broker to clearly understand the markets he is dealing with and what terms, restrictions, flexibility and premiums can be anticipated from each insurer. Before any insurers are approached for quotes it is advisable that an in depth discussion take place between the client and broker so both understand each others needs. This will significantly reduce the chances of misunderstandings and will greatly increase the chances of the right insurance programme being put in place, with the right insurers and with cover being set at the right terms and conditions. One conclusion that can be drawn here is that insurance should not be a last minute purchase. Time should be taken to choose the right broker and discuss the risk fully with him before a decision is made as to where and how to place cover.
In such a competitive market place most brokers will try to offer a client the cheapest premium in the belief that this will be the primary deciding factor in how a risk is insured. In reality, as with everything in life, rarely is the cheapest the best option and before any final decision is made on how a risk is insured discussion should take place as to which insurers have been approached and what terms they have offered, along with their willingness to pay claims in the event of an accident.
A good broker should not have any difficulty in discussing any of the above and should be in a position to discuss all types of insurance available and from which insurers for the risks involved. Insurance Broker: This company / individual represents the client when arranging covers with an insurer. This means a broker is likely to (and certainly should) approach a variety of insurers for quotes, compare their terms and provide the best of these to the client. At all times the broker must act in the best interests of the client, even if it means earning less commission in doing so.
Download the complete details Colin Dawson Tel: (852) 2530 2331 Fax: (852) 2575 3507
E-mail:colindawson@thegeorgegroup.com.hk